Obama’s economic puzzle

The latest data from the Fed showed that nonfinancial companies in the U.S. had nearly $2 trillion in cash and other liquid assets just lying around in bank accounts at the end of March. IRS data analyzed by Reuters’ tax expert David Cay Johnson suggests the real number could be closer to $5 trillion. That’s money that could be going to opening new plants and hiring more workers. But it isn’t.

Why not? Corporate executives say it’s because of all the dreaded “uncertainty” regarding tax and fiscal policy and the European crisis. And they say it would not make any sense for them to create a lot of new product when there is no guarantee there will be enough consumer demand to buy the product because not enough jobs are being created to put more money in people’s wallets.

And why aren’t there enough jobs? In part because companies are sitting on their cash. It’s the kind of circular, chicken-and-egg conundrum that could drive a president crazy. And cost him his job.

It’s no conundrum unless you think government can create wealth and/or the Fed hasn’t pumped enough liquidity into the arid economy. This is why President Obama is stuck. All he knows is government spending money, and government spending money has not and is unlikely to restore economic progress.

Perhaps rather than lecturing business people that they aren’t as smart or hardworking as they think they are (can we say “projection”?) Obama should listen to what these employers are saying. The threat of higher taxes, the imposition of more regulations and the prospect of new Obamacare costs make hiring additional people a foolish gamble. Have the existing workforce work harder or work some additional hours. Watch what happens. Maybe those tax hikes won’t materialize.

Rather than raise taxes on some Americans why not cut taxes for all? Why not cancel the defense sequestration, which will result in even more unemployed? That’s Mitt Romney’s idea, and any incumbent on the ballot should be hoping Obama agrees. An economic nose dive is not going to help their reelection prospects.

However, Obama seems keen on torpedoing a leaking economic boat in order to show his dovish, class-envious base how “principled” he can be. That both the massive tax hikes and defense sequestration cuts are contrary to his own Keynesian philosophy is of no moment. He’s running scared, ready to burn down the economy to pump up his base.

It is inconceivable that Obama thinks tax hikes are good for economic growth and job creation. No one in the White House would believe that. But he continues to pursue these policies because to do otherwise would be to acknowledge that his opponent’s low tax philosophy is valid. It would also signal that “sharing the wealth” is preposterous when we’re not creating enough wealth to absorb new workers. Obama apparently thinks we should all suffer together.

It’s a foreign concept for Obama that it’s fine to let the rich keep their earnings along with everyone else. He finds nothing inconsistent with taking money out of the hands of small business and urging them to grow. A different president with an appreciation for creating private sector wealth would find the “conundrum” of the stalled economy to be the inescapable consequence of Obama’s policy choices and rhetoric.

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Comments our editors find particularly useful or relevant are displayed in Top Comments, as are comments by users with these badges: . Replies to those posts appear here, as well as posts by staff writers.